On March 23, 2017, the IRS scored another major victory against using Belize bank accounts to hide income. On that day, Mr. Casey Padula pleaded guilty to conspiracy to commit tax and bank fraud, including using Belize bank accounts to conceal almost $2.5 million.

Facts Concerning Using Belize Bank Accounts to Commit Tax Fraud

According to documents filed with the court, Mr. Padula was the sole shareholder of Demandblox Inc. (Demandblox), a marketing and information technology business. Mr. Padula conspired with others to move funds from Demandblox to his Belize bank accounts, disguising the transfer of funds as business expenses in Demandblox’s corporate records. At the same time, Mr. Padula created two offshore companies in Belize: Intellectual Property Partners Inc. (IPPI) and Latin American Labor Outsourcing Inc. (LALO). He opened and controlled bank accounts in the names of these entities at Heritage International Bank & Trust Limited (Heritage Bank), a financial institution located in Belize.

From 2012 through 2013, Demandblox “paid” to the bank accounts at Heritage Bank approximately $2,490,688. The transfers were recorded as intellectual property rights or royalty fees on Demandblox’s corporate books and deducted as business expenses on the company’s 2012 and 2013 corporate tax returns, causing a tax loss of more than $728,000. In reality, Mr. Padula used the funds to pay for personal expenses and purchase significant personal assets.

Furthermore, Mr. Padula also conspired with investment advisors Mr. Joshua VanDyk and Mr. Eric St-Cyr at Clover Asset Management (CAM), a Cayman Islands investment firm, to open and fund an investment account that he would control, but that would not be in his name. Heritage Bank had an account at CAM in its name and its clients could get a subaccount through Heritage Bank at CAM, which would not be in the client’s name but rather would be a numbered account. Mr. Padula transferred $1,000,080 from the IPPI bank account at Heritage Bank in Belize to CAM to fund his numbered account.

Facts Concerning Bank Fraud

In addition to committing tax fraud, Mr. Padula also conspired with others to commit bank fraud.

Mr. Padula had a mortgage on his Port Charlotte, Florida home of approximately $1.5 million with Bank of America (BoA). In 2012, he sent a letter to the bank stating that he could no longer repay his loan. At the same time, Mr. Padula provided Mr. Robert Robinson, III, who acted as a nominee buyer, with more than $625,000 from his IPPI bank account in Belize to fund a short sale of Mr. Padula’s home. Mr. Padula and Mr. Robinson signed a contract, which falsely represented that the property was sold through an “arms-length transaction,” and agreed that Padula would not be permitted to remain in the property after the sale.

In fact, Mr. Padula never moved from his home. Moreover, less than two months after the closing, Mr. Robinson conveyed it back to Mr. Padula by transferring ownership to one of Mr. Padula’s Belizean entities for $1. Mr. Robinson also pleaded guilty on March 23, 2017, to signing a false Form HUD-1 in connection with his role in the scheme.

Mr. Padula faces a statutory maximum sentence of five years in prison, a term of supervised release and monetary penalties. As part of his plea agreement, Mr. Padula agreed to pay restitution to the IRS and to BoA in the amount of $728,609. Mr. Robinson faces a statutory maximum sentence of one year in prison, a term of supervised release, restitution and monetary penalties.

Lessons of the Padula Case

The Padula Case is a classic illustration of facts that often lead to a criminal prosecution by the IRS. First, he was shifting US-source income to Belize bank accounts by creating an artificial loss between the entities that he controlled.

Second, Mr. Padula employed a sophisticated offshore corporate structure to actively attempt to conceal his ownership of his Belize bank accounts. While the guilty plea does not specifically state how the IRS first found out about Mr. Padula’s structure, it appears to me that it occurred in connection with the IRS criminal cases against Mr. VanDyk and Mr. St-Cyr.

Finally, Mr. Padula utilized Belize, a tax haven, to commit tax fraud. This is always a factor for the IRS with respect to deciding whether to commence a criminal investigation.

Additionally, the Padula Case is another confirmation there are no safe havens anymore. Especially since the implementation of FATCA, the IRS has now the capacity to trace the transfer of funds, identify the tax violations and present sufficient evidence to prosecute a criminal case.

Contact Sherayzen Law Office for Professional Help With the Voluntary Disclosure of Your Belize Bank Accounts

If you have undisclosed Belize bank accounts or undisclosed offshore assets in any other foreign country, you should contact Sherayzen Law Office to explore your voluntary disclosure options as soon as possible. If the IRS commences an investigation against you, this very fact may result in the closure of all voluntary disclosure paths currently available to you.

Sherayzen Law Office has accumulated tremendous experience in helping its clients with their Offshore Voluntary Disclosures, including Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures and Offshore Voluntary Disclosure Program (OVDP). We can help you!